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What is 409A and Does My Company Need One?

"409A" refers to a set of IRS rules and regulations related to deferred compensation. Company's that issue stock-based compensation, such as stock options, can run afoul of these regulations if they set the exercise price of stock options below fair market value at the time of grant, exposing employees to potentially significant unexpected penalties and taxes.  A 409A Valuation Report properly prepared by a CVA, demonstrates compliance with these rules and regulations, and addresses potential risks relevant to auditors, lenders and potential investors or buyers.

A 409A Valuation Report is also often used as the basis for accounting for stock-based compensation under US GAAP or IFRS.

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